March 18, 2010

For virtuous tax competition, we usually think of Hong Kong. But who would have thought of Chicago as a lower-tax refuge?

The bright idea comes from Chicago Mayor Richard Daley, who is looking to lure employers from Oregon after that state’s voters approved a huge tax increase last week. The tax hike in Oregon “will help our economic development immediately. You’d better believe it,” Hizzoner told the Chicago Sun Times late last week. “We’ll be out in Oregon enticing corporations to relocate to Chicago.”

Oregon raised its top income tax rate to 11% from 9% and its corporate rate to 7.9% from 6.6%, while doubling many small business tax charges and fees. “What happened in Oregon is not good news for Oregon,” explains Mr. Daley. “They believe that anybody who makes $125,000 or more [annually] or businesses or anyone who makes $250,000—they’re gonna start taxing them. They call them ‘rich people.'”

Mr. Daley isn’t buying that. “I’ve always thought America stands for [rewarding success]. You finish high school. You work hard, go to college and you hope to succeed in life. I never knew it’s a class war—that those who succeed in life are the ones that have to bear all the burden. I never realized that. It will be a whole change in America that those who succeed and work hard, we’re gonna tax ’em more than anyone else.”

One of Mr. Daley’s biggest selling points is that Illinois’s top marginal income tax rate is 3%, less than one-third as high as in Oregon. But the Democrats who dominate the state government did try to raise it to 4.5% last year, before failing, and Chicago’s property taxes are high and its sales tax rate is a whopping 10.25%. Illinois doesn’t look nearly as good as Texas or Tennessee, which have no income tax.

Still, it’s nice to know there is at least one prominent Democrat who realizes the folly of raising tax rates to balance state and city budgets. As Mr. Daley puts it, businesses can “go to Wisconsin. They can go Indiana. They can go to India. They can go to China. So if you want to beat up businesses, go beat them up and when they leave, just wave to them, and they’re going to wave back to you.” Can we swap the mayor for Rahm Emanuel?